Waste-disposal company admits fraud, pays $4.5 million fine

January 20, 1994|By Marcia Myers | Marcia Myers,Staff Writer

One of the nation's leading waste-management firms yesterday pleaded guilty to defrauding its customers and paid a $4.5 million criminal fine, one of the largest ever in Maryland.

The four-year overbilling scheme by Eastern Waste Industries Inc., an Annapolis-based company that was indicted in August, affected hundreds of customers, including Mercy Medical Center, the Maryland Department of Transportation, Towson State University and the Anne Arundel County schools.

EWI yesterday acknowledged the practice, which began in 1987 and involved 1,600 accounts. The company has paid customers a total of $3.9 million in refunds and $1.1 million in interest, a spokesman said.

"The management of EWI sincerely regrets the circumstances which resulted in this action and has gone to great lengths to fully rectify the situation," the company said in a statement.

Other charges facing the company in that indictment -- as well as charges alleging minority contract fraud in Montgomery County -- were dropped yesterday in exchange for a guilty plea to one count of mail fraud. EWI's parent company is Attwoods PLC, a British company that runs the fourth largest solid-waste operation in the U.S.

A number of current and former EWI executives -- including Harold H. Johnson, president; Edwin J. Johnson, vice president; and William Dean Roe, area manager -- still face prosecution on charges of mail fraud and conspiracy to commit mail fraud. Most have been placed on paid administrative leave.

Edwin Johnson is accused of authorizing the overbilling scheme -- even ordering training sessions for some division managers to assure consistency.

The scheme involved overcharging "roll-off" customers -- those who place rubbish in large containers that the company picks up, empties at a landfill and returns. EWI officials falsified records to inflate the amount of trash that was picked up.

The overbilling occurred at EWI divisions including those in Finksburg, Frederick, Annapolis, Salisbury and Delmar and in Honeybrook, Pa. Some customers were charged an inflated landfill fee. Gorn Management, a real estate management firm in Pikesville, was overcharged $67,000 over a five-month period ending in early 1990, for example.

When customers began complaining about their bills in late 1989 and in the spring of 1990, they were ignored or told that the mistakes resulted from computer problems, prosecutors said.

In its statement yesterday, EWI said, "Unfortunately, under U.S. law, the corporate entity is liable for the acts of its employees, even when the employee acts against company policy." But prosecutors say executives at EWI and Attwoods, which purchased EWI in 1988, were aware of what was happening.

An internal auditor from Attwoods began looking into the billing discrepancies in March 1990, and by late summer EWI and Attwoods knew of overcharges totaling at least $1.5 million for the 1990 fiscal year, prosecutors say.

According to the company, efforts to remedy the problem were well under way by August 1991, when the FBI executed search warrants at EWI divisions. The first refund payments to customers began in the fall of 1990, said Eric J. Benzer, director of public affairs for Attwoods Inc.

But prosecutors say EWI made payments to only a few customers who had complained. It wasn't until November 1991 that Attwoods told EWI to determine the scope of the problem.

The FBI investigation into EWI and Attwoods is continuing.

EWI officials indicted in the overbilling scheme go to trial April 4 before U.S. District Judge J. Frederick Motz.

Three EWI executives and Montgomery County Sanitation Inc. face trial Jan. 24 on charges of scheming to set up bogus subcontracts with shell companies to convince Montgomery County that they met minority subcontractor requirements.

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